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Brazos Bankruptcy Trial: Ex-ERCOT CEO Knew ‘Financial Storm Was Brewing’ After Winter Storm Uri

Feb 23, 2022
The Texas Lawbook

The former CEO of the Electric Reliability Council of Texas told a federal bankruptcy judge in Houston Wednesday that he would not do anything differently in how the state agency handled the power grid during Winter Storm Uri a year ago and said that setting power prices at $9,000 per megawatt hour was not an error but a decision to “protect the reliability of the system.”

Former ERCOT CEO Bill Magness testified during day two of the bankruptcy trial of Brazos Electric Coop, which is asking Houston Chief Bankruptcy Judge David Jones to significantly reduce the $1.9 billion ERCOT charged to the Waco-based power supplier during the four days last February when temperatures plummeted to record lows.

Magness said the decision to set the rate at $9,000 was the Public Utility Commission’s, but it was a mandate he wanted the PUC to make.

“I knew when the weather and storm was over … a financial storm was brewing,” Magness said. “I didn’t know who had won or lost financially.”

Magness, who was fired two weeks after Winter Storm Uri was over testified that the pricing was not a mistake.

“It was not an error. It was a decision – an action taken to protect the reliability of the system,” he said.

Munsch Hardt shareholder Jamil Alibhai, who represents ERCOT, asked why $9,000 per megawatt hour instead of $4,000 or $6,250.

“We could have thrown darts at a dart board,” Magness answered. “We thought $9,000 would achieve the goal. Rolling the dice was not a reasonable option.”

“Would you do anything differently,” Alibhai asked Magness.

“I did the best I could have done,” he responded.

Alibhai reminded the witness that he’s sitting in a federal court with an energy company in bankruptcy. “Would you do anything differently considering the financial consequences?”

“No, and the reason is when faced with those decisions and what was a head of us, I believe it was effective.”

Judge Jones told Magness that he understands that ERCOT was “in a no-win situation,” but asked, “what happens if you get it wrong?”

“For me,” Magness answered, “I lost my job.”

“Who bears the economic consequences if you get it wrong?” the judge asked.

“If the PUC believes our decisions are bad, they can decertify us or slash our budget.”

But Judge Jones persisted, noting that bad decisions by ERCOT actually means that “market participants bear the consequences.”

“It’s why you wanted the PUC order [because] it gives you no discretion,” Judge Jones said.

Judge Jones also stated that he doesn’t question Magness’ motives and believes he was just trying to do the right thing.

“Has ERCOT ever objected to a PUC order?” Judge Jones asked.

“Not that I am aware of,” Magness responded.

Waco-based Brazos Electric, which serves 1.5 million customers in Central Texas, argues that ERCOT broke rules governing the state’s power market when it set power prices at the $9,000-per-megawatt-hour price cap — more than 300 times the normal price. That price was meant to lure generators to return frozen power plants back online quickly.

At the center of the case are the three and a half days in which ERCOT essentially overrode the Texas power market. Instead of allowing power retailers and co-ops to bid on power from generators, the grid operator set the price at the maximum allowed under market rules.

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